2 stocks I’d buy for my ISA after recent falls

Royal Dutch Shell Plc (LON: RDSA) and Mondi Plc (LON: MNDI) shares look really good value, writes Thomas Carr.

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In the last few weeks, markets have crashed, with investors rattled over fears of trade wars and recessions. In the first two weeks of August, the FTSE 100 fell almost 7%. But rather than panic, investors should see these falls as unique opportunities to buy high-quality companies at low prices.

One quality company I’m tempted to buy is Mondi (LSE: MNDI). Mondi is a global packaging and paper company, and a big one at that, with sales of €7.4 billion last year. The company has a track record of consistently growing revenues and profits, with after-tax profits up from €497 million in 2014, to €866 million in 2018.

After recently increasing the interim dividend, the shares now offer a very attractive 5% yield for the full year. The share price is the lowest it has been in three years, having fallen 16% since the end of July. At the time of writing, the price-to-earnings (P/E) ratio is just 9, which in my opinion is far too low for a company of this quality.

Mondi has a promising future too, as demonstrated by a strong showing in the first half of 2019. Profit before tax was 29% higher than at the same stage last year, whilst its return on capital employed is industry-leading at 23%.

The company is focused on developing new, sustainable packaging solutions, such as flexible and hybrid plastics, that are environmentally friendly. Mondi is uniquely positioned – at the forefront of its industry – to benefit from a consumer that is increasingly concerned about plastic use and recyclability.

Another victim of the recent sell off is Royal Dutch Shell (LSE: RDSB), with the shares down 12% since the end of July.

Full year revenues grew by 30% in 2017, and by 27% last year. Impressive cost cutting has seen after-tax profits increase from just $2 billion in 2015, to $23.9 billion last year. The breakeven oil price for new projects is now just $30/ bl, meaning that Shell now makes more money with the oil price at $60/ bl, than it did five years ago, at $90/ bl.

I think that a dividend yield of 7% (at the time of writing) is probably enough of a reason to buy this stock. But that’s only half of the story. Shell also has a huge share buyback programme, where it’s committed to purchasing up to $25 billion of its own shares, between 2018 and 2020. By the time this is factored in, the real yield of the shares is nearer to 10%.

Management have even signalled an intention to return a further $125 billion to shareholders between 2021 and 2025, which would send the yield into nosebleed territory. All this is available at a P/E of less than 10.

Shell aims to pay for this through its continued focus on cash generation, and by divesting non-core assets. The company is positioning itself as a provider of low carbon energy, through both its new fuels offerings, and its emerging power solutions. Shell is not giving up on conventional oil and gas by any means, but it is trying to diversify into new growth areas, such as EV charging, battery storage, and renewables generation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas Carr does not hold shares in any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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